PIERRE – Members of the special task force ordered by the Legislature to study South Dakota’s competitiveness for wind energy projects concluded their work today at least a little smarter than when they began three meetings ago, but knowledge didn’t translate into action.
The panel of people from the wind electricity field, legislators and state government’s top tax expert couldn’t find common ground on a tax approach that would encourage development of wind farms and related industries in South Dakota.
Instead the group, chaired by Rep. Roger Solum, R-Watertown, adopted recommendations today that simply called for somehow reducing up-front taxes on wind projects, such as sales and use taxes and contractor excise taxes, while keeping the current system intact for property taxes and avoiding an income tax on them.
How to lessen the tax burden wasn’t addressed in the committee’s report that will be delivered to the Legislature and the governor. The task force’s findings include a statement that transmission, regional demand for electricity and federal tax incentives are more critical to wind energy development than state tax policy.
The report also is clear that South Dakota taxes are much higher for wind projects. A 200-megawatt wind farm will be charged about $5 million more in South Dakota than in Iowa over a 20-year span, about $15 million more than in Minnesota, and about $19 million more than in North Dakota.
That gap could grow wider, by about $11 million more, starting in 2013..
While there was agreement around the table by everyone except David Wiest, the deputy secretary of revenue, that taxes should be reduced on wind projects, there wasn’t consensus about what should be done.
A company representative said NextEra, which built the Day County wind farm, favors continuing the construction-tax rebate program that the Legislature has already decided should end Dec. 31, 2012.
The Day County project qualified for a rebate of nearly $4.7 million.
But Brett Koenecke, a Pierre lawyer representing another big wind developer, Iberdrola Resources, said a tax exemption up front would be better.
Koenecke spoke against restoring the rebate program, saying it carries a political “stench” now.
The Legislature voted last year to sunset the rebate program because of its high expense at a time of state government’s budget problems.
Its usage for a broad variety of projects, including wind farms, manufacturing plants, ethanol plants, a credit card center and the TransCanada crude-oil pipeline, came under criticism, because the tax breaks were available whether or not they were necessary for the projects to proceed.
Gov. Dennis Daugaard this year won support from the Legislature’s Republican majorities for a new program that would divert a portion of contractor excise tax refunds into a new program that would award grants to projects at the discretion of the state Board of Economic Development.
But Democrats successfully staged a petition drive to refer the grant program to a statewide vote in the November 2012 election. The program was scheduled to start on Jan. 1, 2013.
The grant program isn’t favored by people in the wind industry because there’s no guarantee a project will get a grant.
Further complicating the situation is a 1991 state Supreme Court decision known as Brink Electric that says there can’t be any exceptions to the state contractor excise tax so that it continues to apply to federal, state and local government projects.
Sales and use taxes and contractor excise taxes in South Dakota for a 200-megawatt wind farm cost about $12.9 million now and will rise to $22 million after the rebate program expires. Those taxes would be $2 million in North Dakota, $2.8 million in Minnesota and $3.4 million in Iowa.
South Dakota doesn’t charge income taxes on most businesses including wind farms. For a 200-megawatt operation over its lifetime, the state income taxes would total $2.2 million in North Dakota, $3.4 million in Minnesota and $4.2 million in Iowa.
All four states charge property taxes in some way on wind farms. Over a 20-year period, the 200-megawatt farm would pay property taxes of $25 million in South Dakota, $15 million in North Dakota, $16.8 million in Minnesota and $25 million in Iowa.
The task force also recommended a review be conducted by the governor and the Legislature of the state energy infrastructure laws that were passed in 2005 haven’t been used yet to promote or construct any electricity transmission projects.
The Legislature has already stopped funding the infrastructure authority’s work.
Sen. Corey Brown, R-Gettysburg, said the infrastructure authority laws should be repealed if the program isn’t going to operate. Brown is Senate chairman of the Joint Committee on Appropriations, the legislative panel that oversees state government’s budget.
“Use it or lose it,” Solum said.
“Yup,” Brown replied.
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